Overview
FAR Subpart 19.1 establishes the procedures and criteria for determining whether a business concern qualifies as "small" for Federal contracting purposes. It dictates how Contracting Officers must assign North American Industry Classification System (NAICS) codes to solicitations and outlines the formal process for appealing those designations through the Small Business Administration (SBA).
Key Rules
- SBA Authority: The SBA is the sole authority for establishing small business size standards on an industry-by-industry basis, typically based on number of employees or annual receipts (found in 13 CFR 121.201).
- Timing of Size Determination: A concern’s size status is generally determined as of the date it submits its initial offer (including price) for a specific contract.
- "Principal Purpose" Rule: Contracting Officers must assign the single NAICS code that best describes the principal purpose of the acquisition. This is usually determined by the component that accounts for the greatest percentage of the contract value.
- Multiple-Award Contract (MAC) Evolution:
- Prior to Oct 1, 2028: MACs are generally assigned a single NAICS code.
- After Oct 1, 2028: Contracting Officers will have the flexibility to assign multiple NAICS codes to distinct categories (line items or functional areas) within a single MAC solicitation.
- Appeals Timeline: An appeal of a NAICS code designation must be filed within 10 calendar days after the issuance of the solicitation or an amendment affecting the code.
Responsibilities
- Contracting Officers (COs):
- Assign the most appropriate NAICS code and size standard to every solicitation.
- Apply the size standard in effect on the date the solicitation is issued.
- Amend solicitations if an SBA appeal is successful or if size standards change before offers are due.
- Withhold contract awards if a NAICS appeal is filed with the SBA’s Office of Hearings and Appeals (OHA), unless withholding is not in the government's best interest.
- Small Business Administration (SBA):
- Maintains the Table of Small Business Size Standards.
- The Office of Hearings and Appeals (OHA) adjudicates appeals regarding NAICS/size designations.
- Offerors (Contractors):
- Represent their size status in good faith as part of their initial offer.
- Must file timely appeals (10-day window) if they believe a NAICS code has been assigned incorrectly.
- Office of Management and Budget (OMB):
- Updates the NAICS manual every five years.
Practical Implications
- Strategic Bid Decisions: Because size standards vary significantly between NAICS codes (e.g., a "small" manufacturer vs. a "small" service provider), the CO’s choice of code can effectively include or exclude certain competitors. Contractors must monitor the NAICS code in the pre-solicitation phase to ensure they are eligible to bid.
- Urgency in Appeals: The 10-day appeal window is exceptionally short. If a contractor believes a NAICS code is inappropriate (e.g., using a "Wholesale" code for what is primarily a "Service" requirement), they must act immediately upon the solicitation's release; waiting until after the bid is submitted is too late.
- Transition to Multi-NAICS MACs: The upcoming 2028 shift for Multiple-Award Contracts will allow for more granular small business participation. A firm might be "large" for the overall scope of a massive contract but "small" for a specific functional category (or SIN) within that contract, opening new avenues for mid-tier firms to participate as small businesses in specific niches.
- Award Delays: A NAICS appeal can freeze the procurement process. COs must be prepared for the administrative burden of coordinating with OHA and potentially amending the solicitation, which can delay the "Ready for Award" date.